Just what the Employees' Provident Fund (EPF) in Malaysia is doing with its members' money is anyone's guess.

The issue of transparency in the country's largest retirement fund has come to a head with the government recently announcing that the publicly-managed fund has on its books doubtful loans to the tune of 791.05 million ringgit ($208 million).

The government says it would be able to recover the loans in a couple of months, without specifying how, or from whom. The fund's 9.45 million members meanwhile are understandably anxious.

Limited options

Under the EPF Act 1991, Malaysian workers are required to make a monthly contribution of 11% of their wages to the fund while their employers contribute 12%. That has brought the fund's coffers to RM163.8 billion.

The fund's government-appointed investment panel is allowed to invest in equities, Malaysian government securities, the regulated money market, the battered property industry, debenture and loans.

The EPF Act normally requires the fund to invest at least 70% of its total investment in government securities. But, according to the government, because of a fiscal surplus in recent years there has not been a great need to issue securities. So, the fund has begun to invest more in equities and loans.

The investment limit for equities, for instance, has been lifted from 10% to 25% with a corresponding decrease in government securities.

When the government announced last week that the fund had accumulated huge doubtful loans, it also declared the fund's dividend for 1999 was 6.84 per cent, up from the previous year's 6.7%. No doubt it had hoped that the dividend would make the loan news less hard to swallow for workers.

But it was not to be. First, the EPF's dividend is lower than those delivered by other smaller, younger funds.áIt prompted the country's biggest trade union, the Malaysian Trades Union Congress, to call for a meeting with Finance Minister Tun Daim Zainuddin, who's ultimately responsible for the fund, to request a higher payout.

The minister's department, however, says comparing the EPF with other funds is not appropriate because the EPF, being a "social entity", is more concerned with capital conservation than funds with different investment strategies and objectives.

Second, the combination of small investment returns and big doubtful loans has proved to be rather explosive. The fact that the law says details of the fund's investment are private and confidential has not stopped the members from calling for the fund to be more transparent when it transacts with their money. They also want the investment panel to be revamped.

On revamping the investment panel, the government's reply is that it's not necessary as the panel's performance is monitored by the finance ministry. What about the doubtful loans? The government states that the loans were only declared "doubtful" because of accounting requirements, assuring members that they are often repaid when the economic situation improves.

More defaults

If the EFP members are waiting for the economic situation to improve, they are going to find the latest figures on employers defaulting on EFP contributions depressing.

In 1997, the number of employers brought to court for failing to remit their employees' contributions was 1672. It jumped to 3379 in 1998, and 4024 in 1999.

The government says it is looking into setting up a special fund to assist affected workers.

At the moment, EPF monies are being used to help victims of defaulted or bankrupted companies, which the government says is unfair to other EPF members.